Quick Facts

Botswana’s economy has been diversifying, largely because of foreign investment attracted by low taxes, political stability, and an educated workforce. The country continues to set an example in the management of large endowments of natural resources. The level of corruption is the lowest in Africa. An independent judiciary enforces contracts effectively and protects property rights.

Economic Freedom Snapshot

2016 Economic Freedom Score: 71.1 (up 1.3 points)

Economic Freedom Status: Mostly Free

Global Ranking: 30th

Regional Ranking: 2nd in Sub-Saharan Africa

Notable Successes: Open Markets and Fiscal Freedom

Concerns: Corruption, Management of Public Finance, and Regulatory Efficiency

Overall Score Change Since 2012: +1.5

A relatively efficient regulatory environment and open trade policies have underpinned competitiveness, and diamond exports have ensured adequate flows of foreign exchange. The financial sector is fairly well developed, with an independent central bank and little government intervention.

Background

The Botswana Democratic Party has governed this multi-party democracy since independence from Britain in 1966. President Ian Khama won a second term in October 2014, though the BDP for the first time garnered less than 50 percent of the vote as opposition groups gained significant support from young and urban middle-class voters. The 2014 elections were the most competitive in Botswana’s history. Botswana has abundant natural resources, a market-oriented economy, and one of Africa’s highest sovereign credit ratings. Diamonds account for one-third of GDP. In an attempt to diversify the economy through tourism, Botswana focuses on conservation and developing its extensive nature preserves. It has one of the world’s highest HIV/AIDS infection rates but is also among Africa’s leaders in combating the disease.

Botswana is still rated the African continent’s least corrupt country, but there are almost no restrictions on the private business activities of public servants, and political ties often play a role in awarding government jobs and tenders. Critics have accused President Ian Khama, a large stakeholder in the tourism sector, of creeping authoritarianism. The legal system is sufficient to enforce secure commercial dealings but very slow.

The top personal income tax rate is 25 percent, and the top corporate tax rate is 22 percent. Other taxes include a property tax, an inheritance tax, and a value-added tax. The overall tax burden equals 31.3 percent of total domestic income. Government spending amounts to 32.4 percent of total domestic output. Public debt equals less than 20 percent of GDP.

The overall freedom to establish and run a business is relatively well protected. With a one-stop shop for entrepreneurs in place, opening a business is easy and straightforward. The mismatch between labor market demand and the supply of skilled workers continues. Government-administered prices for electricity and water have risen, but the IMF reported that total grants and subsidies amounted to less than 7 percent of GDP in 2015.

Botswana has a low 0.5 percent average tariff rate, but importing goods can be costly. Many sectors remain closed to foreign investment, and in most cases, land cannot be sold to foreign investors. The financial sector is one of Africa’s most advanced, and the stock exchange has been growing. There have been no bank failures, and the banking sector continues to expand, although access to financial services remains low.